Loonie Falls as Consumer Confidence Reading Cuts Risk Appeal

July 27 (Bloomberg) -- Canada’s dollar weakened against its
U.S. counterpart after a measure of U.S. consumer confidence
trailed economists’ forecasts, reducing the appeal of higher-yielding currencies.

The loonie, as Canada’s dollar is sometimes known, earlier
touched the highest level in more than a month before heading
for its first decline in three days. The Conference Board’s
sentiment index fell to 50.4, below the median forecast of
economists surveyed by Bloomberg News and the lowest level in
five months.

“Stocks turned, commodities are off and we bounced off the
support line at C$1.0257,” Firas Askari, head currency trader
in Toronto at Bank of Montreal, Canada’s fourth-largest lender,
said in an e-mail. “Fundamentals and technicals are both
negative for the Canadian dollar today.” Support refers to the
lower boundary of a trading range, in this case for the
greenback versus the loonie, where buy orders may be clustered.

The Canadian currency declined 0.4 percent to C$1.0359 per
U.S. dollar at 4:38 p.m. in Toronto, compared with C$1.0323
yesterday. It earlier touched C$1.0256, the highest level since
June 22. One Canadian dollar buys 96.53 U.S. cents.

Monthly Gain

Canada’s currency is headed for a 2.7 percent gain in July,
the first monthly advance since March, as stocks and crude climb
in the period.

The Standard & Poor’s 500 Index, which advanced as much as
0.5 percent, fell 0.1 percent. The S&P 500 is up more than 8
percent since June 30, and crude oil is 2.4 percent higher. The
loonie is 84 percent correlated to movements in the S&P 500 and
65 percent to swings in the nearby crude futures contract,
according to Bloomberg data. Readings of 100 percent signify a
lock-step relationship.

“Equities and crude have both made nice gains and will be
seeing some profit-taking,” Michael Leavitt, a Montreal-based
institutional-derivatives broker at MF Global Holdings Ltd.,
said in an e-mail. “The Canadian dollar is not immune to that
and should soften as well,” he said, referring to today’s
decline. “However, the next push through today’s highs will see
C$1.000 soon after.”

The loonie traded on a one-for-one basis with its U.S.
counterpart on April 6 for the first time in almost two years.
The currency rose to par with the greenback in September 2007
for the first time in three decades amid booming demand for raw
materials. It lost 18 percent in 2008 as the credit crisis
crushed demand for commodities.